Saturday, 28 November 2020
2017 Australian Yellow Goods Report

2017 Australian Yellow Goods Report

The Australian mining fleet yellow goods value has recovered 41% in the 15 months ending December 2016.

The consensus is that the market is back in recovery mode as demand for late model, low hours equipment in the mining market is strong, in particular for highly productive ultra class assets, whereas the value of older equipment has suffered, reflecting a preference for current technology and greater efficiency. Meanwhile the value of yellow goods in the construction market has been stable.

Additionally, the supply of second hand equipment has expanded in both markets in 2016 with a greater quantity of completed sales, albeit with a drop in the overall clearance rate. Capex is helping to drive the recovery in used asset values. However the supply of quality used assets is diminishing.

Management teams will face a key decision of whether to overhaul existing machinery, procure new equipment, or hire from third parties. The extent to which they want to embrace new technologies and digital developments will also impact on these decisions.

Strategic procurement will become an emerging issue as lead times for new equipment lengthen over the next 12 - 24 months.

The latest analysis indicates that there has been a 41% recovery in the index over the 15 months ending December 2016. Whilst values are still well below the levels reached in 2013, it is encouraging to see values starting to increase, albeit at a modest rate.

Commodity prices are much improved although there was a downturn in coal and gold prices towards the end of 2016. The iron ore price has doubled over the last 12 months and by mid-February 2017 had reached over US$90 a tonne. At the time of writing the iron ore price had fallen from these highs. At the same time the gold price has firmed indicating further instability in commodity markets for the foreseeable future.

Signs of a recovery in the mining segment

While the mining and mining services industries contracted over the period 2012 through to 2016, current expectations are for a recovery in the general level of activity in 2017 and beyond.

Higher commodity prices and international demand for high quality coal, iron ore and gas are expected to drive that recovery.

Despite some businesses failing to survive others joined forces in order to get through the downturn unscathed.

For example, in the mining services sector, Emeco Holdings, Orionstone Holdings and Andy’s Earthmovers pulled together a three-way merger in a deal that required the cooperation of the creditors of all three companies.

The other side of the coin revealed that key players such as GE’s Industrea, National Plant and Equipment and other mining aligned businesses such as McAleese, are just a few that failed to survive.

Construction segment remains stable

Over the past 15 months, secondary prices in the construction market have remained relatively stable, however we have noted a slight reduction in 1H16 for older equipment. This continues a trend that commenced in 2014 following the end of the mining construction boom.

The value of equipment in the construction segment of the market has shifted over the past 15 months. Values for calendar year 2016 are marginally below 2015 levels, however when viewed together, the value movements over all three periods indicate a relatively stable market in this segment.

Key take outs:

Maintenance Matters: Many operators have departed from original equipment manufacturer recommended preventative maintenance schedules. Many are using condition monitoring (fuel burn, temperature and oil) techniques and adopting a ‘run-to-fail’ policy.

Low hours ultra-class and high capacity equipment in a class of its own: There is strong demand for low hours, high-capacity equipment but there is little, if any, equipment available on the market to meet this demand. The low volume of equipment that has transacted has sold for strong prices.

Technology trends and productivity – embracing digital: The trend towards autonomous equipment appears to be continuing. For fleets of greater than 30 haul trucks this will become the norm. However, the price of adopting an automated system is expected to remain prohibitive for smaller operations for the foreseeable future.

Destination markets: Within Australia the hot spots are New South Wales and Victoria with equipment being relocated from Far North Queensland and Western Australia due to the depressed demand in these two regions. South America appears to be the dominating overseas destination, driven by some large projects across the region.

Procurement strategies: End users of yellow goods are becoming more sophisticated in their capital allocation decisions. The current trend is to minimise capital expenditure by using a mix of contract mining and owned fleet.

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